How Many Guests Will Stay in Your Hotel? A Simple Way to Determine Your Hotel’s Profits

In times like these, when most hotels have reduced their operations and focused on keeping their guests comfortable and wanting to come back, it’s important to look at the numbers to determine if you made the right decision in keeping the doors open.

One way to do this is to look at the Average Daily Rate (ADR). This is the average amount a guest pays, on average, per day while staying in your hotel.

According to the 2018 Hotels & Restaurants Global Market Survey from Trui, an online travel agency, the average global hotel ADR was $262 per day in 2018, an increase of 6% since 2017. But even taking into consideration all of the incredible growth that the industry has seen in the last two years, this number seems exceptionally high to us.

To get an idea of how expensive a hotel guest’s day can be, let’s take a look at a few examples. First, let’s say you have a luxury hotel with an ADR of $500 per day, which is on the high end of the scale. On the low end, a basic hotel could have an ADR of $200 per day.

According to the survey, the average daily rate in this scenario is $500 per day or $22.50 per hour. So for every hour that a guest spends in your hotel, you’re making $22.50. Not bad for some relaxation and a break from reality, right?

Another way to look at this number is to compare it to your hotel’s revenue. If you multiply the ADR times the number of total rooms, you’ll get an idea of how much money you made on that particular guest. For example, if your hotel charges $500 per day and has 100 rooms, your hotel will make $5,000 from that one guest alone, not taking into consideration other revenues from other guests or other parts of the hotel.

Depending on how long your guest stays and what category they fall into (high-end versus low-end), you could see how much money you actually made off that one guest alone. We know that not all guests will stay the same length of time, so you’ll want to factor that in too.

An important thing to keep in mind is that this number is always going to be high if most of your guests stay more than a few days. So, if you’re considering closing the hotel down because you’re not making enough money, you might want to reconsider.

Other Metrics to Consider

While the ADR and revenue are really important numbers to look at, they’re not the only ones. There are several others that you might consider comparing to get a sense of how well your hotel is doing. These include:

  • Expenses – How much did you spend on repairs, maintenance, and operations in 2018?
  • Profit – What was your profit margin in 2018 (net income divided by revenue)?
  • Asset Value – What is the value of the property (excluding the land), accommodations, and fittings in terms of money?
  • Dividend – What is the dividend (dividend per share, including both ordinary and extraordinary), given the last financial year?
  • Bookings – How many direct bookings did you have in 2018, which you can then compare to your hotel’s capacity?
  • Churn – What is the churn (the rate of termination of accommodation stays), calculated as the number of room nights that were terminated as a percentage of the total room nights?

Once you have an idea of how your hotel is performing, you can figure out what changes you need to make to improve. For example, if you struggle with keeping guests longer than a few days, you might want to consider improving the guest experience by investing in more staff or additional services. Or if you find that your guests stay in a particular area for a while and then move on, you could make that area more luxurious by investing in new furnishings or additional amenities. If you want to know how much money you’re actually losing, you can take a look at your hotel’s income and expenses and determine how much you actually made (and how much you lost). If you want to know if keeping the hotel open was the right decision, you can simply compare your hotel’s income and expenses to its performance metrics, such as the ADR and profit.

You might also want to look at your hotel’s occupancy rate. This is the average number of guests who stayed in one of your hotel’s rooms in a given period. It can give you an idea of how well your hotel is doing and whether or not you should continue with the same strategy. If you find that your hotel’s occupancy is low, you might want to consider investing in more efficient rooms or changing the strategy altogether and concentrating on attracting more affluent guests.

The Bottom Line

As we mentioned above, most hotels have had to dramatically change the way they do business in the last few years due to the pandemic. But since the industry has started to pick up again, it’s important to look at how well you’re doing to determine if you made the right decision in keeping your hotel open. While the way that guests experience your hotel will never be the same as it was before the pandemic, you can always make changes to accommodate them and continue to grow your hotel’s business.

One way to determine this is to look at your hotel’s Average Daily Rate and compare it to your expected revenues. If you find that your hotel’s ADR is higher than expected, it could be a sign that you’re losing money and should consider closing the hotel down. But if your hotel’s ADR is lower than expected, this could mean that you’re making more money than you think and should consider expanding the hotel.

Remember to factor in all of your hotel’s revenues when looking at these numbers. This includes direct bookings as well as revenue generated from other sources, such as sales of food and beverage, gift cards, etc. In addition, don’t forget to take into consideration all of your hotel’s expenses, as they are all important numbers that contribute to the final outcome. Calculating these numbers can be quite tricky, so make sure that you hire an accountant or bookkeeper who is experienced and can help you take stock of all of your hotel’s finances.